The legitimacy threat to business, politics and welfare

When thinking about criminal justice and the state a very significant frame is that of legitimacy. Jean-Marc Coicaud defines legitimacy quite simple as the ‘right to govern’. It is about simultaneously justifying political power and obedience for Coicaud. But can we apply legitimacy thinking in other areas where the legitimate use of coercive force may not apply? With some modification, quite possibly. It might well be applicable to business, electoral politics and public services – especially welfare.

David Beetham defines three ‘dimensions of legitimacy’: conformity to rules, justifiability of rules in terms of shared beliefs, and expressed consent. Conformity is outcome of legitimacy. Shared values demonstrate an alignment of power-holder and audience. Expressed consent is a sign that legitimacy has been secured.

Now apply this to business. Conformity is not in the nature of business in the way it is in law; exchange of goods and services is. With this modification, the legitimacy framework becomes quite useful. Where businesses align their values to their ‘audience’ (customers) and there is expressed consent for their good or service (customer satisfaction) then they will secure more custom.

Let’s take Google which has been in the news recently as a result of its tax affairs. The company has been under some considerable criticism for its tax management (or tax avoidance practices depending on how you view it). Eric Schmidt, Google’s chief executive, is clear on this: “we [Google] fully comply with the law.” Its tax affairs are determined by the objective law not some value-based approach.

Essentially, he has taken the calculation that despite widespread concern at the way in which multinational companies arrange their tax affairs, Google can afford to allow a gap to open on the ‘shared value’ dimension of legitimacy without it harming ‘conformity’, ie people continuing to use its services. It’s a risk but a calculated one. Starbucks took a different view when it voluntarily paid extra taxes under political and media pressure last year.

Interestingly, Schmidt makes a very different calculation on the legitimacy impact on his business when it comes to the privacy of user data. Here is Schmidt on ‘tracking’:

“A situation where you go to people and say, 'Oh, here's our phone, and we're going to track you to death,' people are not going to buy that phone. It's just a bad business model.”

This can be seen as a statement about legitimacy (interestingly, Microsoft’s latest advertising slogan is also ‘your privacy is our priority’). There is a fear that values between the ‘audience’ and the ‘power-holder’ could rapidly become out of kilter, expressed consent would rapidly corrode and conformity (transaction) could well break down. There are all sorts of collective action and direct impact reasons for tax arrangements and privacy presenting different case studies. Ultimately though, the assessment is one that is akin to legitimacy. It may be that Governments ironically end up resolving Google’s (et al) legitimacy gap on tax by the introduction of a destination tax or unitary taxation. Until that point which is likely to be in the fairly distant future, corporates have a legitimacy challenge.

Political parties face similar challenges. Again, with some modification these can be seen as legitimacy challenges. A couple of weeks ago, I wrote about ‘democratic stress’ and the rise of UKIP on this blog. In the case of parties, ‘conformity’ is about support and expressed consent about loyalty and activism. The ‘none of the above’ party is on the march and there is a clear signal that parties are struggling to align their values with that of the electorate. UKIP is one outcome of the legitimacy gap between traditional, mainstream parties and the electorate.

One of the major sources of friction between political parties and the voters is the welfare state. A recent large-scale poll suggested that ‘welfare dependency’ may be as high as the second most salient issue for voters. In the New Statesman, Ian Mulheirn argued recently that the system has been cut from underneath itself as it has become more marginal and less based on contribution (ie previous national insurance contributions paid in) so it benefits few and when it does, they receive little relative to their contribution levels. This could be a source of the decline in support as much as tabloid horror stories of people living a life of luxury on the state.

Unlike immigration, younger voters are just as concerned about welfare dependency and gaming of the system as older voters and, British Social Attitudes show, much less likely to see the welfare system as a proud national achievement. The Coalition has chosen to trim rather than reform welfare in the main. Even with the proposed new universal credit, the system will function in pretty much the same way in 2015 as it did in 2010.

It may be that a contributory element could be a component of any reform. The risk is that would be expensive and would still fail to quell the abhorrence that many if not most people have for moral hazard within the system.

Given that the system is underpinned by law, there is little choice but to conform (you have to pay your national insurance). Expressed consent has been continually eroded over a thirty year period. The values expressed by modern welfare are not aligned with those of the majority of people. Google’s tax policy creates a legitimacy gap. In the case of welfare, there is a legitimacy chasm. It may even be approaching what Jurgen Habermaas would describe as a legitimation crisis. Radical reform has barely even begun but it will do - the only real question is whether it comes from the right or the left.

What the legitimacy framework offers us is a way to understand when the gap between business, politics, and state institutions on one hand and the values of those on whose consent they rely is getting out of kilter. It suggests when reform – potentially radical reform – is necessary. In business, politics and welfare, we would appear, in different degrees, to be at that point.

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